The Affordable Care Act and Medical Care Prices and Utilization for Privately Insured Patients

The Affordable Care Act (ACA) is changing the amount and location of uncompensated care that hospitals provide.  Many have argued that this positive profit shock will lead to negative "cost shifting".  i.e., that nonprofit hospitals will redistribute this profit shock by lowering the prices that they charge privately insured patients.  This argument was cited by the Obama administration during the ACA’s debate, and by the Roberts Court in justifying the individual mandate.  And yet, the academic literature on cost shifting either relies on dated data or relies on profit shocks lacking in external validity when extrapolating to the ACA’s effects.  We exploit variation in state decisions as to whether to expand Medicaid, combined with information about the income of patients within a hospital's cachement area to construct a measure of how treated each hospital is by the ACA's coverage expansions.  We use this variation to test whether hospitals have engaged in negative “cost shifting” in response to the ACA.  Standard data sources lack the ability to track the prices that privately insured patients pay.  Many sources fail to track the contractual discounts that hospitals provide to insurers and the best publicly available data sources cannot cleanly separate reimbursements for privately insured and Medicaid patients.  Furthermore, the ACA may have altered the composition of the pool of the insured.  We tackle these challenges by leveraging data from the Health Care Cost Institute, which allows us to measure the actual transaction prices for each of the hospital discharges of three large national insurers (e.g., Aetna, Humana, UnitedHealthcare).  Our results have implications for DSH payments, nonprofit tax policy, and also provide new evidence on the role of nonprofits in the US healthcare system.